Ok here are the step by step inactions I would try
1.Put the HDD that you want to install 98/ME on into another computer and set it to slave and boot up into windows with the other machine.
2.Run partion magic and format the HDD that you want to install windows on into FAT16 into 2GB sections.
3.Put the HDD disk back into the original computer and set it to master.
4.Put the windows ME disk in the C drive and turn on the computer and install windows make sure that windows works then restart the computer and install windows 98 on a different partion.